Illinois court holds that Fannie Mae cannot be liable for a money judgment obtained in an in rem demolition proceeding

Fannie Mae succeeding in reversing a decision by the Circuit Court of Cook County which entered an in personam money judgment against it for the City of Chicago’s demolition costs on the basis that the demolition proceeding where the costs were assessed was an in rem action and Fannie Mae had no opportunity to defend.

In City of Chicago v. Federal National Mortgage Association, 2017 IL App (1st) 162449, the City sued Fannie Mae to recoup its costs to demolish a dilapidated building that Fannie Mae took back in a foreclosure. Fannie Mae objected to the entry of judgment because it was not the owner of the property when it fell into disrepair and the imposition of personal liability on Fannie Mae was not authorized under the City’s Unsafe Property Act (“Act”).

The City argued that judgment was authorized because the Act allows a money judgment against the “owner or owners” of demolished property. The City also argued that it was not required to foreclose its demolition lien in a separate civil action but could obtain a money judgment via a motion in the demolition case. The circuit court agreed with the City finding that because the demolition order was entered when Fannie Mae was the owner, it was liable for demolition costs.

On appeal the reviewing court was asked to determine whether it authorizes a municipality to impose personal liability for demolition costs simply by filing a motion in the demolition case or whether greater procedural protections are warranted. The court observed that the Act does not provide that the City can simply file a motion for a money judgment against the “owner or owners” in the demolition case. When a municipality applies to demolish a building the court is required to make only two findings: (i) the building is dangerous and unsafe; and (ii) the building is beyond reasonable repair. Issues raised by an owner that require consideration of matters beyond the two required findings must be resolved elsewhere. The Act’s language that a municipality “may” enforce its lien in several ways is not permissive. Rather, the Act’s plain language requires the municipality to pursue either foreclosure of the demolition lien or bring a separate civil action against those owners whom it seeks to hold personally liable.

The City’s position also violates due process principles. The reason for the Act’s various provisions regarding the post-demolition or repair enforcement of a municipality’s lien is obvious: an action seeking demolition is an expedited, in rem proceeding directed only against the property. Such proceedings are not designed to resolve issues concerning which owners should be liable for the demolition costs. To do so would impair the due process rights of those it seeks to hold personally liable. This is best illustrated in a case like this where there was no evidence that Fannie Mae was responsible for the condition of the building and the complaint did not make any allegations against Fannie Mae. With no opportunity to contest the legal and factual basis for or amount of its liability is antithetical to the notice and opportunity to be heard that are the hallmarks of due process.